Google Inc. (NASDAQ:GOOG) has debt, which will be maturing in about three months, so it decided to have its first debt offering in almost three years. Although Google has about $37 billion in cash, on hand, they wanted to take advantage of the current corporate interest rates before they move drastically lower.
It is a wise decision for a company known for making informed choices. While Google could have funded its debt with cash, the opportunity was just too advantageous for them not to move forward with it.
The response to the bond sale was significantly strong, reaching over $10 billion. Google already sold $3 billion worth on Monday. In fact, some analysts believe that Google could have made twice the offering with no issues and the same level of demand.
With the bond payout, Google stands to make a substantial profit. However, it is not just good for Google. As an illustration, Google’s 10-yr bond is expected to yield 3.734%, while 10-yr Treasuries yield 3.15%. Furthermore, Google is selling three-year and five-year bonds.
Since bond yields move inversely to bond price, they have had a steady decline. But, investors expect that to change as the Federal Reserve retreats from its QE2 bond-buying arrangement.
Another perk of the bond sale is it makes it easier for Google to make acquisitions. Although they lost WhatsApp to Facebook Inc., Google certainly has a plethora of companies that it can cherry pick in order to add to its current product and services lineup. It also gives them a form of protection in the event the economy goes through another roller coaster.
Other tech companies that have issued debt this year include, Dell Inc., Cisco Systems Inc. and International Business Machines Inc. So, this means that Google is well-positioned for any future market downfalls, as well as future acquisitions.
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